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Web.com Group, Inc. (NASDAQ:WWWW)

Q2 2010 Earnings Call

August 3, 2010 5:00 PM ET

Executives

Timothy Dolan – ICR, Investor Relations

David Brown – Chairman and CEO

Kevin Carney – Chief Financial Officer

Analysts

Philip Dionisio – FBR Capital Markets

Sameet Sinha – JMP Securities

Andrew Scace – RBC Capital Markets

Operator

Greetings. And welcome to the Web.com Second Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Timothy Dolan of ICR. Thank you, Mr. Dolan. You may begin.

Timothy Dolan

Thank you. Good afternoon. And thank you for joining us today to review Web.com's second quarter 2010 financial results. With me on the call today are David Brown, Chairman and CEO; and Kevin Carney, Chief Financial Officer. After prepared remarks, we will open up the call to a question-and-answer session.

Please note that our remarks today contain forward-looking statements. The words expect, believe, will, going, begin, see, plan, continue and similar expressions are intended to identify forward-looking statements.

These statements are based solely on our current expectations and are risks and uncertainties that can cause actual results and the timing of such results to differ materially from those projected in the forward-looking statements.

Please refer to our filing with the SEC and the risk factors contained therein, including our quarterly report on Form 10-Q for there quarter ended March 31, 2010, for more information on these risks and uncertainties and other limitations that apply to our forward-looking statements. Web.com expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements made herein.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation to the nearest GAAP financial measure is available at our website, www.web.com, under the Investor Relations tab. Also, please note that our webcast on today's call will be available on our website in the Investor Relations section.

With that, I'd like to turn the call over to our Chairman and CEO, David Brown. David?

David Brown

Thank you, Tim. And thank you all for joining us on the call to review our second quarter 2010 results, which were consistent with the company's guidance from a revenue and profitability perspective.

I’ll begin today with an overview of the business highlights for our second quarter. I’ll then focus on the fundamental position and outlook for our company post the recent closure of the Register.com acquisition. This is a transformational event for Web.com and one that we believe will drive substantial shareholder value over the next 12 to 18 months.

We continue to feel good about the stability in Web.com’s core business. Total revenue has stabilized in the $100 million annualized range, we continue to generate solid profitability margins, our subscriber base has been flat to up in each quarter over the last 18 months, and we have continued to increase our customer retention rates to all time record levels.

From a macro perspective the market environment during the second quarter was largely consistent with our expectations, and our view exiting the quarter has not changed for the better or the worse. It remains uncertain what the pace of economic recovery will be and even more so with respect to how long it will take for such an improvement to trickle down to small businesses.

In the face of these headwinds, we believe that Web.com is executing at a high level. We have protected our long-term assets and franchise value, as well as solidified our leadership position in the market for online marketing solutions for small and medium size businesses. An area that we have made remarkable progress throughout the economic downturn is customer retention.

During the second quarter, we once again brought churn down to a new record low level 2.9%, which is down from 3.1% last quarter. While many small businesses currently have greater limitations on their ability to invest in and deploy new solutions, our success in continually reducing our customer churn is evidence that our installed base is driving value from our offerings.

When our churn was running at more than double current level several years ago, we did not believe a sub 3% churn level was even possible, considering our target market characteristics. While there is no guarantee that it will stay at current levels as churn can be variable from quarter-to-quarter, however, given what we have accomplished in such a difficult market environment, we now believe it is not unrealistic that Web.com could see churn reduced to the low to mid 2% range from a long-term perspective and in a healthier economic environment.

Another area that we are proud of is Web.com’s ability to maintain our growing subscriber base for six consecutive quarters, which is an indication of the stability in our core business and capability of management to protect and grow our core asset of approximately 278,000 subscribers. This is important because it provides Web.com with a large and growing base of customers to up-sell and cross-sell over time.

Entering 2010, we spoke to the fact that we planned on starting the process of increasing investments and marketing programs with the goal of restoring topline growth. These investments take time to have an impact on our overall business, considering our large revenue base combined with the ratable nature of our revenue recognition model, but we are encouraged by the progress we are seeing.

On last quarter’s call, we discussed the subset of new marketing programs that we were in the early stages of testing, including utilizing a third-party firm to implement a new methodology for analyzing prospect list, increasing our focus and resources dedicated to marketing our private label brands and on a limited scale putting sales people directly in the market to build relationships and generate proposals for small businesses. Each of these programs performed well in the quarter though we need more data before scaling them further. We also continue to test other marketing programs and are in the process of formulating additional go-to-market strategies and channels to invest in.

The acquisition of Register.com is a core component of our long-term growth strategy. We believe the acquisition of Register.com is a transformative event for Web.com. We expect to expand our non-GAAP revenue base by approximately 80%, more than double our adjusted EBITDA run rate after realizing the full potential of costs synergies, and realize a meaningful positive impact on our non-GAAP EPS.

Equally important, Web.com significantly enhanced scale and cash flows will provide the company with far greater resources to investment in marketing programs to drive the combined company’s long-term growth.

Let me review some of the compelling aspects of bringing our two companies together. First, the acquisition of Register.com by Web.com creates a strong industry leader. Our combination creates a single company with non-GAAP revenue run rate of approximately $180 million in our first full quarter together, over 1 million paying subscribers and a highly diversified base of industry-leading small and medium-sized business channel partners.

Second, Web.com and Register.com share a common market focus and go-to-market strategy, both Web.com and Register.com have a broad suite of solutions and extensive expertise in serving SMBs through a comprehensive customer acquisition strategy, including call centers, direct marketing, search engine marketing and distribution partnerships.

Third, the highly complementary nature of our solutions, provide significant cross-sell and up-sell opportunities. The addition of Register.com increases Web.com subscriber base by almost fourfold to over 1 million customers. Many of these new customers are targets for Web.com’s broad suite of best-in-class web services, online marketing, e-commerce, search engine marketing and search engine optimization solutions.

From a longer term perspective, Register.com’s customer acquisition activity in the domain name area provides a further prospecting base for Web.com web services and online marketing solutions. One of the most effective sources of leads for Web.com web services historically has been new and renewing domain name registrants. When small businesses are securing domain names, they are timely and qualified leads for web services and online marketing.

As it relates to growth of the domain name services market and Register.com’s core offering, we mentioned on our call announcing the acquisition that they were previously restricted and there ability to invest in programs that have longer term growth benefits. Rather, they had great pressure to focus on maximizing near-term profitability and cash flow. This was due to the restricted nature of the debt covenants, which have been removed as part of the acquisition.

We are confident that Register.com’s domain name services have growth potential. Global domain registrations have grown steadily in recent years and governing bodies are mandating the introduction of new top-level domains or TLDs and international domain names or IDMs, both of these have the potential to increase what has already been healthy market growth. As an example, there are currently approximately 270 existing and new TLDs initiated in 2010 and we expect thousands more to be initiated in 2011 and beyond.

This essentially means that Register.com has more domain products to sell overall; therefore the potential for increase business from existing domain name service customers, looking to protect their business algorithm and expand their new domain options is significant. There is also potential for new customers and previously untapped international markets.

The four strategic reasons for acquiring Register.com is that we expect the transaction to have a significant positive impact from a financial perspective. We expect the transaction to be immediately accretive in the second half of 2010 and significantly accretive to our 2011 results. What we believe, it is reasonable for the company to deliver non-GAAP EPS in the range of $1 per share.

This is largely based on integrating our organizations, people and processes. It’s also important to understand that we only expect to realize approximately half of the potential cost synergies during 2011, as the run rate of cost savings scales over the course of the year, meaning that the realized cost savings is expected to double from 2011 to 2012.

It is the strength and consistency about company’s profitability and cash flow combine with our cost synergy potential, that enable Web.com to secured debt on very attractive terms at a time when many companies are struggling to access the debt markets. In addition, we are confident that we will be able to rapidly pay down the debt associated with the transaction, with the goal of retiring our debt well before the maturity date.

The fifth and final strategic reason supporting the transaction is that our combined organization will have significantly enhance resources to invest in programs targeting, targeted at driving long term growth. A very important take away from our commentary on today’s call and which is reflected by our acquisition of Register.com is that we are becoming decidedly more aggressive in our focus on growth.

When we entered 2010, we spoke about increasing resources dedicated to marketing programs to put the company back on a growth trajectory. The acquisition of Register.com is an extension of this strategy and we believe it has relatively low risk with very high reward potential. Our combined organization is not only position to deliver significantly greater profitability in cash flow, but from day one we will also have greater resources to accelerate the process of restoring growth in our business.

We have greater resources to dedicate to investing in Register.com, core domain name business, later resources to dedicate to Web.com score Web services in online marketing offerings greater resources to dedicate cross selling solution across our respective large customer bases and greater resources to target new prospects with our end-to-end value proposition. By combining our two originations, Web.com stands as one of the largest providers of online marketing solution in the world and we are one of the most profitable as well.

With non-GAAP EPS potential of $1 per share in 2011 and further scaling in 2012, we believe the company’s ability to simply execute from an integration perspective and deliver on the cost synergies will drive substantial shareholder value over the next 12 to 18 months. The ability to take shareholder value to even higher level will be tie to our ability to reignite the top line growth and we believe we are in a far better position to do so, post to Register.com acquisition, as compared to what either company could generate on a standalone basis.

Our respected teams have already been hard at work from both an integration perspective, as well as identifying abatable marketing strategies and programs, given our broader product sweet and availability of resources. We look forward to sharing our progress in both of these areas in the quarter ahead.

With that, let me turn it over to Kevin to review the quarterly financials in more detail. Kevin.

Kevin Carney

Right. Thank you, David. Our total revenue for the second quarter came in at $24.8 million which was at the mid point of our guidance range, within total revenues subscription revenue came in at $24 million, which compared to $24.5 million last quarter. The remaining $820,000 came from professional services and other revenue which was an increase from $648,000 last quarter.

As David mentioned, we entered the quarter with a stable subscriber based of approximately 278,000 subscribers. The size and growth of our subscriber base is important, because of our provability to expand customer relationships overtime with additional application across our growing product sweet.

This capability is somewhat mass at the moment, because Web.com has been bringing onboard many lower or few customers as part of our overall growth and profitability strategy, while growth subscriber additions related to some of our higher offering at the greater macro headwinds. The combination of these two factors, led to our second quarter ARPU coming in at $28.70 compare to $29.48 in the first quarter.

It is important to keep a couple of factors in mind. First, when we are bringing onboard lower ARPU customers, they are generally a very attractive profitability margin is this can be seen -- and this can be seen and the company’s ability to continue driving solid profitability margins and returns on our marketing spend. Second, we are executing against the number of initiatives that we believe have the potential, positively impact our ARPU overtime and particularly once macroeconomic conditions in the small business market stabilized and improve.

Turning to gross profit we generated $14.8 million in gross profit for the second quarter, representing a gross margin of 59.7% which compare to 58.7% last quarter. The sequential increase in gross margin relates primarily to the increase in higher margin offering during the quarter. Our focus on investing in Web.com direct brand is beneficial not only because it is higher margin, but also because it helps to further diversify our business and place more control of our destiny in our own hands.

Moving onto operating profitability we’ll focused our discussion on non-GAAP or pro forma results, because we believe that excluding the effects of a non-cash or non-recurring item such as stock based compensation, amortization of intangibles arising from business combination, cooperate development expenses, restructuring charges and revenue eliminated and purchase accounting, provides the best indicator of the health of our overall business in the level of efficiency of our operating infrastructure.

Our second quarter non-GAAP income from operations, which excludes the effect of stock based compensation, amortization of intangibles, restructuring charges, cooperate development expenses associate with the Register.com acquisition and revenue eliminated in purchase accounting was $3.1 million representing a 12.6% non-GAAP operating margin.

Based on $26.8 million shares outstanding for the quarter, we generated non-GAAP diluted EPS of $0.12 per share, which was at the high end of our guidance of $0.11 to $0.12. Adjusted EBITDA, which excludes the impact of stock based compensation, restructuring charges, cooperate development expenses and depreciation and amortization expenses was $3.8 million for the second quarter of 2010, representing an adjusted EBITDA margin of 15%.

We also appreciate that investors needs to analyze our results on a GAAP basis, we provided a full tabular reconciliation of this GAAP results and the non-GAAP results, as part of the earnings release. In summarizing, the second quarter GAAP results gross margin was 59.1%, sales and marketing expense was $5.2 million, R&D expense was $2.2 million, G&A expense $5.6 million, depreciation and amortization expense was $3.3 million and restructuring expense was negative 6000 leading to a GAAP operating loss of $1.6 million and a net loss from continuing operations of $1.8 million or $0.07 per share. The GAAP results including reconciliation to non-GAAP results are available on our website at www.web.com under the Investor Relation section.

Moving to the balance sheet unrestricted and investment was $42.8 million at the end of the second quarter up from $39.5 million at the end of the first quarter. We generated positive cash flow from operations of $4.3 million excluding the pay down of crude restructuring expenses and expenses associated with closing with the Register.com acquisition. On a GAAP basis we reported cash flows from operation of $3.7 million.

Our balance sheet at the end of the second quarter does not include the financing of the Register.com transaction. Let me provide an overview of our anticipated balance sheet. Now, that we close the acquisition as well as guidance for the third quarter and full year 2010 that includes the expected contribution from Register.com.

We would have used approximately $143 million to finance the purchase of Register.com, which consists of $135 million for the Register.com business and approximately $8 million in costs and expenses related to the transaction. These expenses included debt financing costs as well as professional fees.

The transaction was financed with $95 million of long-term bank debt, $50 million on a new revolver, seller long-term debt of $5 million and approximately $28 million of Web.com’s cash balance.

A couple of things to point out, first, this translates to an unrestricted cash balance of approximately $50 million for Web.com which we are very comfortable with considering the significant cash flow that our combined organization is expected to generate.

Second, you will note that our mixed of debt is slightly different from our expectations at the time we announced the transaction. At that time, we expected to finance the deal with a $110 million of long-term debt without accessing our revolver.

At the end of the day, the overall terms that we closed the transaction on, were optimal from a cost of capital perspective. Our long-term debt carries an interest rate of LIBOR plus 450 basis points with no LIBOR flow.

We also planned to hedge a portion of our debt with an anticipated all in effective interest rate in the range of 5% to 5.5%. As David mentioned, we feel very good about the debt terms we were able to achieve. Many companies have not been able to access the debt markets at all and we’ve recently seen many deals closing at rates 6% to 7% above LIBOR.

We believe that our favorable debt terms are a reflection of confidence in the cash flow profile of our combined organization. It’s also a function of our commitment to paying down the debt on a consistent basis. While the maturity date on our long-term debt is in 2015, our goal is to pay off the debt well in advance of that date.

Before speaking to our non-GAAP guidance for the third quarter and full year 2010, let me discuss several GAAP charges that we anticipate taking that are excluded from our non-GAAP guidance. First, we expect to take a significant write-down of purchased deferred revenue and related prepaid registry fees which will impact our GAAP revenues and cost of sales.

Second, we anticipate an increase and amortization expenses associated with purchase intangibles. Finally, under new purchase accounting rules, we will also be expensing a significant portion of transaction expenses and restructuring expenses as incurred.

We are still in the process of analyzing what level each of these charges will be. With that, let me turn to our non-GAAP guidance for the third quarter of 2010 which as a reminder includes a stub period for Register.com.

We are currently targeting non-GAAP revenue in the range of $37 million to $38 million assuming a contributions of approximately $30 million for Register.com. Our revenue guidance also assumes a revenue elimination of approximately $300,000 to $400,000 associated with sales transactions between the two organizations.

We currently expect our non-GAAP net income for diluted share to be in the $0.13 to $0.14 range which assumes $26.8 million diluted shares outstanding and a non-GAAP tax rate in the high 20% range.

We’re assuming a non-GAAP cash tax rate in the high 20% range of third and fourth quarters of 2010 due to certain taxables which prevent us from using our NOL to shield the portion of Register.com income during those periods. In spite of the significant short-term increase in taxes, we will -- we still expect that Register.com transaction to be accretive to our non-GAAP EPS.

In addition, there is some potential for more favorable tax treatment in the third quarter of 2010; however, we thought it was appropriate to build our forecast based upon conservative assumptions in this area.

Looking ahead, we expect cash tax rates to come down to the mid-to-high teen level beginning in 2011 and further down to the high-single digit level of 2012 as more of our NOLs become available. In 2013 and beyond, our current expectation is that cash taxes will start to move back up and will provide more color on that progression of the course of the next year or two.

With that, let me turn to our expectations for the full year of 2010. We’re currently targeting non-GAAP revenue in the range of $130.4 million to a $132.9 million which assumes a contribution of $32 million to $33 million from Register.com and a combined company, non-GAAP revenue run rate that is approximately a $180 million as we exit 2010.

This assumes our revenue elimination of approximately $1 million for the second half of the year. We currently expect our non-GAAP net income per diluted share to be in the $0.53 to $0.55 range which assumes $27 million diluted shares outstanding.

We will not be completing our detail plan for 2011 to later in the fall but let me close with a few high-level thoughts. First, we currently expect to realize approximately half of the $10 million cost synergy potential in 2011 as the quarterly run rate of savings will scale over the course of the year, as such exiting 2011, we will have visibility into an additional $5 million and cost savings that can be realized in 2012 as a result of our efforts in 2011.

Second, we expect cost savings realized in 2011 to contribute throughout the company’s ability to deliver non-GAAP EPS in the range of a $1 per share for the year, even with a cash tax rate in the mid-to-high teen’s range being maturely higher than what Web.com had experienced in the past.

Third, we currently expect to generate adjusted EBITDA in the range of $40 million for the full year of 2011. And finally, our goal to use a strong cash flow over combined company to pay down approximately one third of Web.com’s GAAP between now and at the end of 2011.

In summary, we are very excited about the prospects for our combined organization and we believe we have the opportunity to create substantial shareholder value as we integrate our companies to deliver strong cash flow and profitability and increase investments and growth initiatives.

With that, we now like to take questions. Operator, if you could please begin the Q&A session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of David Hilal from FBR Capital Markets. Please proceed with your question.

Philip Dionisio – FBR Capital Markets

Hi. This is Philip Dionisio for David. Just wanted to talk about revenue synergies, could you talk about where it’s going to come from in terms of products and could you also split it up according to timings. What kind of revenue synergies do you expect in 2011 and also what’s the low hanging fruit for 2010?

Kevin Carney

Sure. There are a number of opportunities that we’ve identified in our planning process. They range from monetization of our domain name portfolio within Web.com. Register.com has significant experience in the domain name industry and in generating value from domain names that they own or that customers have let go and we will be -- we will be deriving value from Register.com, taking over and managing those domains, something as simple as that to taking new domain name customers and early on in the process, contacting them and soliciting them if they need help getting a website built or getting their website optimized or marketed. We’ve already done a test program with Register.com prior to the acquisition being completed of this concept.

And over the years, we’ve done this a number of times with Register and with other domain name companies. So we know that there will be a very high conversion rate coming from -- of new and existing domain name customers in this up-sell process. So it ranges from simple things like monetization of expired domain names to complex things like up-sell and cross-sell of very high value added areas. And then add to that the fact that all the Web.com customers have a domain name but may need multiple domain names to protect their assets. We’ll be looking at opportunities to sell more domain names into our existing base of Web.com customers. So those are just a few examples, the ones that will be the easiest ones to do will be areas like monetization where we can very quickly ramp up that program. There are some other ones like advertising where Register has generated a significant amount of revenue through advertising to their customers, will also begin to look at that for the Web.com customers.

And then next year you will us – later this year or next year, a much more aggressively involved in up selling and cross selling our vast array of products to their customers as well as domain names to the Web.com portfolio.

Philip Dionisio – FBR Capital Markets

And then Kevin, when you talk about $1 EPS potential next year, what does that imply for, what portion of the cost synergies will be reinvested in the business?

Kevin Carney

Well, I think that – we’ve talked. I don’t know if we have given specific, David, guidance on in terms of the additional marketing spend that we would assume in 2011. I think – maybe, we’ll give more formal guidance. For 2011, we will talk more specifically about those numbers, but certainly we have made an assumption and we have built that into our plans and our guidance that we will file back a percentage of those savings into additional marketing initiatives.

Philip Dionisio – FBR Capital Markets

All right. Thank you.

Operator

Our next question comes from the line of Sameet Sinha with JMP Securities. Please proceed with your question.

Sameet Sinha – JMP Securities

Yes. Thank you. Several question here. Just looking at your second quarter revenue numbers, when you gave guidance for the second quarter you had mentioned revenues improving sequentially from for the rest of the year. Second quarter seems to have fallen short of that goal. What changed that affected your results. Your guidance was for investment sales and marketing. Did that decline sequentially, which tells me that you saw something, deteriorate after you gave guidance and decided to pull back, so that’s question number one.

Now, second thing is cost of gross sub-adds was up about 18% year-over-year, up about 11% sequentially to 196. The Register.com acquisition by our math was slightly lower than that. So, are you seeing this as an opportunity with Register.com, to kind of gain customers that kind of your current rates or is there any intellectual property there, which you also found attractive and then I have a couple of follow ups.

David Brown

Okay. Regarding the second quarter revenue guidance, Sameet, we actually came in very close. We came in within the range that we expected, the quarter played out very much the way we thought it would. We’ve been talking about stabilization of revenue in the first half of the year and then modest growth in the last half of the year. And so more or less things played out the way we expected them to play out. When you look at our sales and marketing lines, remember that that includes both sales people as well as third party marketing costs.

We actually did have a modest increase in our third party marketing cost during the quarter and we have got a benefit from that. We actually saw an increase in subscriber growth associated with that expense. But at the same time we are continually optimizing our sales organization and trying to improve its sales effectiveness and productivity. And we were fortunate enough to accomplish that in the quarter as well and that helped us maintain strong profitability, so.

Overall, I would say things played out the way we expected. However, going forward you should expect us to continue to add back more sales resources. We are constantly proving, but we do expect to grow our sales force in the latter half of the year. We also expect to increase our third party marketing cost and expenses in the latter half of the year as well.

As for the opportunity related to customer acquisition, you bet. We absolutely do think that this acquisition makes sense from the perspective that we are acquiring 800,000 subscribers. And our own subscribers are best base of customers to cross sell and up sell. So now that they are part of our family, we have the greatest potential to be effective in up selling and cross selling and this was a very effective and cost efficient way for us to acquire subscribers that we can then begin to sell our other value added products too.

Sameet Sinha – JMP Securities

Okay. Couple of follow ups. As a combined company, what percentage of your revenues will come from valued added services and also if you could talk about individually where you stand as of now on value added services as a percentage of sales? And then I have one more follow up.

David Brown

Okay. So I think it’s too soon for us to give you a precise answer on that as we are still digging in and understanding all the revenue opportunities that exist within Register.com customer base. But I can tell you at a high level that, obviously most of the revenues of Web.com were value added services and frankly, are very small percentage of the revenues at Register.com for value added services. So we see tremendous upside potential in selling the portfolio of value added services to the very large Reg.com base of customers. And again, we’ll provide more insight into that in our next as we provide our planning for 2011.

Sameet Sinha – JMP Securities

Just in terms of the competitive environment, obviously the number of competitors continues to increase. Everyone’s targeting the local and SMB market? How do you see that – your high level ARPU products are feeling the impact of macro conditions, considering that there are many higher ARPU solutions that are out there, do you think you’ll have an opportunity to benefit in this market where somebody who is spending a $1000 per month, where somebody else could potentially spend – probably a lower amount with you because you have those sort of solutions.

David Brown

Well, I think from a competitive perspective, not much has changed other than it is a very, very difficult environment for anyone that is serving small businesses. So in many respects what this transaction does for us, is it gives us significantly more strength, more ability to project our brand into the market.

So one thing that you will see us do as we ramp up our third party marketing costs, is we’ll be in a better position to be known as a solutions provider. To date we serve the entire United States and at Web.com’s prior size and prior profitability, we had an ability to reach the market at one level as a combined company with our revenue run rate at $180 million plus and again a $1 of non GAAP EPS next year, after already significantly expanding our marketing expense, we just have a lot more reach into the market and our ability to be known. And to get in front of small business, will be significantly enhanced.

We think that has going to help reignite our topline growth at a time when other companies, frankly, are having to struggle with a very difficult business environment.

Sameet Sinha – JMP Securities

Great. Thank you very much.

David Brown

Yes.

Operator

(Operator Instructions). Our next question comes from the line of Steven Ju with RBC Capital Markets. Please proceed with your question.

Andrew Scace – RBC Capital Markets

Good evening. This is Andrew Scace for Steven Ju. Thank you very much for taking my question. Just a couple of quick questions around the acquisitions. I was wondering if you could give us a little bit more detail or insight into what sort of CapEx requirement you might see going forward. And then also now that the acquisition has closed, any detail you might be able to share with us around how much of the price can be flown to goodwill and to intangibles that we might be able to work out? What kind of amortization expense we’ll be seeing?

David Brown

Yeah. The second one is premature I think at this point.

Andrew Scace – RBC Capital Markets

Okay.

David Brown

But I think on the – the first one I can give you some feedback there. I think if you look at what we’ve been spending as Web.com, we have, in the last couple of quarters in the range of $350,000 a quarter, call it $1.5 million a year. I wouldn’t expect that to change. Reg.com, on their own, historically, spend a $2 million a year, so combined $3.5 million range. I can tell you that we planned for something slightly higher than that in our planning, kind of $5 million range which we may – I wouldn’t expect us to be in that range.

We may have a little bit of extra CapEx with the integration. So somewhere between 3.5 to $5 million, but I would tend towards a lower end of that range, on a normalized basis.

Andrew Scace – RBC Capital Markets

Okay. Great. Thank you.

Operator

There are no further questions in the queue at this time. I would like to hand the call back over to management for closing comments.

David Brown

Well, thank you. I would like to thank everyone again for joining us. We are very excited about Web.com’s future and believe the acquisition of Register.com is a transformational event. For the company, we expect the transaction to be immediately accretive in the second half of 2010.

And we believe our combined company is well position to deliver non-GAAP EPS in the range of $1 per share in 2011. Equally important, we plan to simultaneously increase spend in sales and marketing to restore Web.com’s topline growth, which we believe has a potential to drive further increases in shareholder value.

We look forward to speaking with you over the course of this quarter, while we are on the road meeting with investors and as always if you would like to speak to us in the mean time, just call our investor relations group and we can arrange a time. Thank you and good evening.

Operator

Ladies and gentleman, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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